The Definitive guide to the First Time Home Buyer South Africa [Townhouse/Apartment]
- BUYING A HOUSE FOR THE FIRST TIME?
As a first time home buyer, faced with the prospect of buying your first home, the questions start! Buying a house is not a simple matter and ignorance can cost you thousands.
- What type of property should I buy?
- How important is location?
- Where should I buy a property?
- How do I establish the correct price to pay?
- Must I pay the asking price?
- Can I afford a bond?
- What size deposit do I need?
- What hidden costs are their?
- How does the legal process work to transfer the property into my name?
I recently assisted a first time home buyer who came to me for advice as she was about to put in an offer on her first home. She was purchasing it though another agency in an area where Targer Properties does not operate, so I had no vested interest in swaying her decision either way.
I was able to use the tools and experience available to me to show her that she was about to pay almost 25% too much. She was able to go back to the agent armed with the correct up-to-date market information and successfully negotiate to secure the property at a market related price.
Price is one of the many factors when buying a home, and much heartache and money can be saved by making the correct informed decision.
The Property Ladder
I love the metaphor of the Property Ladder to describe the process of residential property ownership. It describes the ability to climb both economically and socially. I recall my own tentative steps onto the property ladder. The promise of growing my wealth, adding stability to my young family and the feeling of having arrived ! Not forgetting the obvious benefit of escaping my landlord. No longer can a relative stranger have so much effect on my life. I could live there as long as I wanted, keep my “rental” fairly constant and avoid the inconvenience of a move.
I had seen my older friends and family who were renting having to move, simply because their landlord decided to sell rather than renew their lease.
The metaphor because ladders have steps, and by simply following the steps you can get up there where you are aiming at – The TOP!
Check out this short video describing the property ladder.
STEP 1: WHAT TYPE OF PROPERTY SHOULD I BUY?
Typically young families that are considering buying their first home are also only starting out in their careers. They are paying off that first or second car, furnishing home etc. It stands to reason that cost will be a major factor.
To this end flats and sectional title townhouses tend to be more cost effective than standard full title houses and clusters.
Full title houses that can fit a tight budget are normally found further away from schools and places of work in poorer areas, and that may not be suitable.
Fortunately flats and townhouses are great options and are found closer to places of work in the city. I have my reservations regarding flats. Commonly found blocks of flats with retail shops on the ground floor, limited parking and poor security are the problem. You have no control over the type of shops who may move in – The retail component can have a devastating impact on your value!
Townhouses offer secure living environments, frequently with 24 hour on site security, electrified fences all around, resourt features like pools, tennis courts, clubhouses and braai areas.
Townhouses are also great investments, so when you decide to move up the property ladder and upgrade your living space, you can lease the townhouse out as a fantastic buy to let investment.
That leads me to the conclusion that townhouses are fantastic first time home buyer options.
In this short video I go into more detail on choosing the right type of property and in particular the pros and cons of buying flats and townhouses as a first time property purchase..
STEP 2: LOCATION LOCATION LOCATION
The location of your property is the most important decision a home buyer can make. Location influences your lifestyle, your status in the community, your convenience to work, shops, schools, recreation facilities, security etc.
The idea is to pay as little as possible to obtain the best possible location, and fortunately townhouse developments often meet than requirement very well.
A simple rule of thumb is to consider that you need to get to schools and places of work every day of the working week. Visits to places of recreation and shopping are less frequent.
Try to buy your home close to school and your place of work
In this short video I look at location in a bit more detail.
Step 3: Affordability
Next step is to establish from this table how much a bank will believe that you can afford. All the banks have their own lending criteria, there are some similarities that allow you to apply a rule of thumb.
Assuming you have a monthly surplus, then add that surplus to your current rental to establish your affordability- since you won’t be renting anymore 🙂
The banks will then limit the size of your bond repayments to be less than your affordability.
Banks will generally offer 100% finance to clients who can afford it and with a good credit record, but offer a special deal for the first time home buyer. They offer 105% bonds to pay for the full purchase price plus the transfer costs which are generally just over 5% . To calculate the bond transfer costs, [click here]
This table (prime interest rate of 7% ) will give you a rough guide of the size of bond you could qualify for.